The existing official series of Wholesale Price Index (WPI), with base 1981-82=100, has been in use since the last week of July, 1989. The revision of base year of the Wholesale Price Index (WPI) takes place approximately at an interval of ten years in order to effect changes in the weighting diagram and align it with the changing production and trade to ensure that the WPI series is a good indicator of price changes in the Indian economy. The last Working Group for the revision of the index number of wholesale prices in India was constituted under the chairmanship of Dr. C. Rangarajan, then Deputy Governor, Reserve Bank of India. The revision in the base year from 1970-71 to 1981-82 was undertaken on the recommendation of that Working Group.

1.2 In view of the need to realign the WPI with the structural changes in the Indian economy since 1981-82, the Ministry of Industry set up a Working Group, under the chairmanship of Prof. Y.K. Alagh, the then Vice-Chancellor, Jawaharlal Nehru University, to revise the existing WPI in India (base 1981-82 = 100), to examine the commodity coverage, selection of the base year, weighting diagram and other related issues pertaining to the same, vide, Memo No. WG/22(2)/91-WGD dated, 18 June 1993. Prof. S.R. Hashim has been the Chairman since September, 1996 consequent upon Prof.Alagh taking over as Minister of State (Independent charge) in the Government of India. The Working Group set up five Sub-Groups to help in expeditious completion of the tasks assigned to it. Out of the five Sub-Groups, three (i.e., the Sub-Group on manufactured items & related matters, the Sub-Group on unorganized\unregistered industries, and the Sub-Group on agricultural commodities) corresponded with three different segments of the commodity space spanning the economy. Of the two new Sub-Groups which were set up by this Working Group, one dealt with conceptual and analytical issues and the other with computerization.

1.3 The composition of the Working Group is given below :

1.4 The terms of reference of the Working Group were as follows:-

1. To select a most appropriate base year for the preparation of a new official series of Index Numbers of Wholesale Prices in India;
2. To determine the period most relevant for calculating value of transactions/ production of commodities for obtaining weights;
3. To review commodity basket of the current series of WPI and suggest additions/ deletions of commodities in the light of the structural changes in the economy witnessed since 1981-82;
4. To evolve a suitable system for allocation of weights to the various commodities to be included in the WPI basket;
5. To suggest grades/varieties of commodities as also markets/centres/sources for obtaining weekly price quotations;
6. To review issues relating to the method of WPI compilation with special reference to seasonal items, administered articles, linking factor and other related issues;
7. To suggest any other improvements as may be necessary for enhancing the reliability of the official series of WPI

1.5 The Working Group held eleven (11) meetings to finalize the report. These meetings were held on 15.09.93, 20.09.94, 15.02.95, 13.07.95, 26.02.96, 07.11.96, 12.08.97, 7.11.97, 14.01.98, 18.03.99 and the final one on 26.10.99.

The Working Group was immensely assisted by the following five sub-groups constituted for special tasks:

1. Sub-Group for the selection of manufactured items, specifications, market centers, etc. (Chairman: Director-General, Central Statistical Organisation).
2. Sub-Group to sort out issues, relating to identification of items manufactured in the unorganised sector and estimation of their value of production. (Chairman: Additional Development Commissioner, SSI, Office of DC, Ministry of Industry).
3. Sub-Group on selection of agricultural commodities, varieties, market centers, etc., and estimation of their marketed/ marketable surplus ratio.(Chairman: Economic & Statistical Adviser, Deptt. Of Economics & Statistics, Ministry of Agriculture).
4. Sub-Group on analytical and conceptual issues. (Chairman: Dr.Shovan Ray, then Member (Economic) Bureau of Industrial Costs and Prices (BICP), Ministry of Industry.
5. Sub-Group on computerisation. (Chairman: Special Secretary & Director-General, National Informatics Centre).

The Sub-Group on Manufactured Items & Related Matters was set up to help the Working Group primarily to undertake two main tasks, namely (i) selection of manufactured items, their specifications, markets and centres for the commodity basket of the WPI and (ii) identification of commodities whose prices are administered and also the open market prices in the index compilation. The Sub-Group held three meetings on 16 December, 1994, 15 March, 1996 and 16, May 1996 and submitted its report on the selection of manufactured items. The Sub-Group on identification of items manufactured in the unorganised sector held three meetings, on 1.12.94, 24.11.95 and 30.12.96, to finalise its recommendations. The Sub-Group on agricultural commodities held four meetings on 16.12.94, 7.10.96, 4.12.96 and 31.1.97. After detailed discussion the main tasks before the sub-group were identified as selection of agricultural items to be included in the revised series of WPI and building up the best possible estimates of marketed surplus ratios (MSRs) for various agricultural commodities on the basis of data available from different sources. Based on various meetings and consultation with numerous Government agencies/ Departments, the sub-group came out with revised coverage of agricultural commodities and generation of best possible estimates of MSRs for recent periods. The sub-group on Analytical Issues was set up (i) to evolve a suitable system for allocation of weights to the various commodities to be included in the WPI basket, ii) to consider the scope for inclusion of non-commodity items in the services sector, such as financial instruments, communications, transportation, in the weighting structure for the Wholesale Price Index series and (iii) other conceptual and analytical issues as encountered by the Working Group in its deliberations. The Sub-group met three times during its tenure to deliberate on the terms of reference made to it and other issues which were put forward in the course of discussion in the Working Group and other Sub-groups. The Sub-group on computerisation was set up to work out a strategy and accordingly suggest methods relating to computerisation of the compilation and possible dissemination of WPI to the main Working Group. The main objective of the Sub-group was (i) to improve the coverage and quality of WPI data by timely collection with a high degree of correctness and (ii) dissemination of WPI information to the user community.

1.6 The final recommendations of the Working Group on various technical aspects of the wholesale price index are embodied in the Report. Elaborate notes have been prepared on the aims and practical applications of the index of wholesale prices and background of the earlier series. The Report comprehensively deals with each and every issue relating to the revised series. Accordingly, detailed chapters have been prepared on: (a) the choice of base year, (b) coverage of the revised series, (c) selection of items varieties/grades, markets etc., (d) preparation of the weighting diagram, (e) collection and checking of prices including conceptual aspects of wholesale prices, (f) conceptual and analytical aspects of wholesale prices, and (g) several other important aspects of the series, viz., treatment of seasonal items, finalisation of the index, classificatory system, computerisation of the index compilation and linking of the two series. The Report also contains a separate chapter on a comparative study of the price trends as revealed by the indices in the revised series and those further in the existing series, with base transformed to 1993-94. Finally, all important recommendations of the Working Group have been summarised in a separate chapter.

1.7 The Working Group has taken a good deal of time to finalize its recommendations. This has been so on account of the voluminous amount of work involved as well as the waiting time for data to become available for the year which was considered to be the most appropriate base year for the revised series. The work involved included: (i) collection and compilation of the value of production data for the base period, for construction of an acceptable weighting diagram, (ii) estimation of marketed/marketable surplus ratios in respect of agricultural commodities and value of production in respect of the unorganised manufacturing sector required for the preparation of weighting diagram, (iii) selection of items and preparation of weighting pattern, (iv) selection of representative sources which would supply the price data of manufactured products; (v) collection and processing of weekly price data in respect of all the selected items/varieties starting from the base year, (vi) preparation of the base year average prices for the individual quotations, (vii) compilation and analysis of weekly, monthly and annual wholesale price index numbers since April, 1993 and finally (viii) synthesizing the entire work, as an integrated whole, in the form of a Report. There was considerable waiting time for the availability of Annual Survey of Industries data since it was decided not to use 1989-90 and use 1993-94 as the base year for the revised series.

1.8 The Working Group considered a list of possible changes which could be effected in the structure of the weighting diagram, including the issue of inclusion of the hitherto excluded service sectors of the economy and measures to compile a family of indices to fulfill various needs of the economy. The Working Group considered the merits of various possible changes suggested but stopped short of disturbing the basic structure of the indices as they exist. This was considered necessary to balance the need for change with those for continuity, stability and the overriding requirement of revision without procrastination.

1.9 The Working Group has carried out a number of changes apart from the routine ones of changing the base year with a new weighting diagram. These are discussed in the following chapters and chapter-7 has been focussed entirely on analytical and conceptual issues related to the WPI system. The WPI series as it conventionally exists has a long history connecting it back to the late 1930s and this link is not intended to be snapped. However, it is important that many analytical issues are highlighted so that in subsequent attempts at change, consideration could be given at the outset to these already identified issues.

1.10 Since the beginning of nineties, i.e., with the beginning of liberalization and economic reforms, the structure of Indian economy has started changing at a faster pace. As the economy integrates more and more with the world economy changes will be even faster in trade and production structure. In order to keep the WPI reasonably well aligned with the rapidly changing economy, some of the issues pertaining to WPI will have to be tackled on a mere regular basis, may be as a year to year basis, rather than waiting for 10 years or so for a comprehensive view to be taken on the revision of WPI. With this view, it has been proposed in this Report that a Standing Advisory Committee on WPI be setup.

1.11 The Secretariat could seek the advice of the Standing Advisory Committee on all issues pertaining to WPI that might arise from time to time as also on the task of initiating alternative indices which have been identified here. The two sets of issues (revision and initiation of new indices) belong to separate domains of activity and it would be desirable to begin the development work forthwith. The draft terms of reference of the Standing Advisory Committee are presented in Annexure-V. When such initiatives bear fruit, as they seem likely, they could be thoroughly tested for robustness and each separate index series developed could be targeted to serve some specific needs. A single index series catering to several different requirements runs the risk of providing flawed inferences about price behaviour.